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The top legal concern… even regulators cannot keep up

19 September 2019 Myra Knoesen
Patrick Bracher

Patrick Bracher

Increasing focus on personal accountability, greater oversight of distribution chains, the protection of customer interests and the adaptation of products to new technologies are the global themes Norton Rose Fulbright identified across regions in 2019.

FAnews spoke to Patrick Bracher, Director at Norton Rose Fulbright South Africa, about the top legal concerns for insurers in the South African insurance market in 2019.

Concerns across several regions

“If you look around the world, climate change and cyber risks are big issues. If major geographic catastrophes continue, rates are likely to go up because the burden on reinsurers is massive,” said Bracher.

“Cyber risk is a risk not only to insureds but also to insurers. It is not clear to what extent existing policy wordings will inadvertently cover major cyber events; every insurer needs to look at every policy to see that they are not covering risks they have not priced for,” continued Bracher.

“On the other hand, Artificial Intelligence (AI) is going to make insurance more efficient, both at underwriting and claims stage, although the cost of good technology is not cheap. The complex legislation will lead to there being fewer insurers, fewer brokers and a difficult road to transformation as new entrants to the industry are deterred,” emphasised Bracher. 

Product development

“South Africa has a sophisticated insurance market driven by highly competent insurers and brokers who drive innovation. The South African market is moving ahead into the electronic and digital world. The Protection of Personal Information (POPI) Act is due to come into force under which privacy will be protected by statute. The risks of those processing personal information will be increased, and they will need insurance backing. Directors and Officer’s insurance is playing a bigger role because of the increasingly onerous obligations on directors, particularly directors of financial institutions,” continued Bracher.

“Insurtech is a growing focus of attention. There are many young innovative insurance geeks who are bringing ideas into the market,” he said.

“The standard insurance market is also increasingly relying on the internet to deal with underwriting, premium collection and efficient claims management. For instance, immediate claims service is being offered to motor claimants,” added Bracher.

The SA insurance market in 2019 and 2020

“The top legal concern is the ever-growing amount of regulations that even the regulators cannot keep up with. Couple this with a limping economy, and the cost is high,” said Bracher.

“In 2020 there will be more law. The authorities want to introduce the Conduct of Financial Institutions (CoFI) Act which, if it looks anything like the Bill, will create an even bigger burden for insurers, who all still have to be relicensed. The role and earnings of intermediaries are being eroded in an industry which historically has been made dynamic by the role of brokers,” added Bracher.

“By the year 2030, AI will have made a sea change to the way insurance is underwritten and performed. With computer capacity doubling every two years, according to Moore’s Law, most insurance will be intermediated online, written online and claims will be handled online, with little human intervention. Block chain technology will cut out many intermediaries and cut out a lot of human action altogether. Access to private data about every insured will be almost infinite leading to everybody scrambling for the best risks and the worst risks struggling to find affordable insurance,” continued Bracher.

“The answer is transparency, so that any person knows the reasons they are being rejected or loaded. A way of challenging any obstacles to reasonably priced insurance will have to be found backed by a proper Ombud process, with the Ombud being an intelligent machine rather than a person, for most disputes,” Bracher added.

“The principles of Treating Customers Fairly (TCF) should encourage the development of better policy wordings, fairer transactions and efficient claims handling. The new business opportunities will come to those who couple customer care with efficient technology,” concluded Bracher. 

Editor’s Thoughts:
As Bracher said, South Africa has a sophisticated insurance market. Although concerning for insurers and intermediaries alike, as an industry, we should view all the changes that will come into play as an opportunity to reimagine customer relationships and professionalize our industry. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za.

Comments

Added by Alan, 20 Sep 2019
Once the Conduct of Financial Institutions Bill becomes law, the FSCA will suddenly find themselves having to regulate credit providers, debt collectors, payment systems, all entities that provides benchmarks and related services, all services related to buying or selling of foreign exchange, credit rating services and others. Watch out for the mountains of regulations still to come . ..

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Added by Kenny Williamson, 19 Sep 2019
I dont understand why direct insurers have different recordof advice requirements to brokers who actually see people?
seems it should actually be more onerous on them.
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Added by Mark Haken, 19 Sep 2019
What is missing in this article is the (unintended) consequence of this plethora of, expensive to implement, regulation and legislation which effectively drives out the smaller players, and creates massive barriers to entry, thus favouring the largest, established entities. It is anti-competitive in the extreme, and the regulatory authorities appear to only pay lip service to size and resources of the companies - the cost is such a disproportionate burden on small and start up insurers as to render them totally uncompetitive. The largest insurers must be clapping their hands in glee!
Seems to me to be going against the ethos unfair competition. The monopolies commission should examine the regulations and laws with a view creating a fairer legislative environment.
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Added by Ayanda, 19 Sep 2019
Dear Myra,
I’m sure Mr Bracher said “a sea change” and not “a sea of changes”, which is an entirely different concept.
I am also sure that he used the word “Ombudsman” rather than the grotesque South Africanist “ombud”.
And yes, he well knows that the poor FSCA cannot keep up with, and still needs to learn the unintended consequences of, its new imported legislation and regulation.

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